The future of payments: latest trends

Apr 04, 2024 - 6 min read
Abantika Chatterjee, Head of Competitive Intelligence at Sopra Banking Software
  • Payments are shifting away from a transaction focus to embedded finance.
  • Developments in B2B payment networks will be led by novel business models, new technologies, and changing customer demands.
  • CBDCs can reduce risk, minimize third-party involvement, and lower transaction fees.

The payments landscape has evolved toward an integrated commerce approach, with collaborations between banks, fintechs, payment networks and merchants, prioritizing customer-centric experiences. All the stakeholders of the ecosystem are working together to build the future of payments.

The focus has shifted from mere transactions to dynamic payment methods, including real-time account-to-account payments and ‘Omni rail’ platforms, offering increased customer choice. Banks remain central in this ecosystem, partnering with corporate clients to deliver embedded, scalable, cost-effective payment solutions.

QR code-based digital payments, often linked to mobile wallets from Big Techs like Apple, Samsung, and Google have gained widespread consumer acceptance. Additionally, payments networks are implementing enhanced security measures such as PCI 3-D Secure, a modern messaging protocol, to ensure additional authentication and increased authorization assurance.

Weaving greater value and utility around payment experiences

In 2024, businesses recognize the importance of enhancing value and utility in payment experiences. B2B payment providers leverage networks to amplify their value to clients, with payments taking a back seat to features like identity, ticketing, and loyalty in digital wallets. Account-to-account (A2A) payments are gaining prominence, providing real-time liquidity for businesses, while micropayments are emerging as an alternative to subscription models.

Micropayments to emerge as an alternative to subscriptions

Lately, global content providers have been trying to address subscription cancellations by introducing micropayments, allowing consumers to pay only for what they use.

This strategy aims to offset revenue losses from subscription closures, tapping into the trend of on-demand micro-consumption. Transcending the realms of social platforms, micropayments are expected/likely to play a defining role in shaping the gig economy and niche media platforms.

The ease of authenticating and linking bank accounts, driven by open banking and fintech innovation, along with the global rise of A2A bank-based payments, facilitates this shift.

Merchants are attracted to lower processing costs offered by A2A payments compared to cards, and an estimated one in 10 merchants is expected to experiment with pay-as-you-go micropayment strategies. Adoption is likely to be smoother in regions where A2A is well-established, such as Brazil, Europe, and the UK.

The message encourages businesses to explore how micropayments can be integrated into their strategies in 2024.

B2B payment networks to facilitate more than 50% of B2B business

In 2024, B2B payment networks expect noteworthy developments led by novel business models, new technologies, and changing customer demands. For example, models like B2B e-commerce are estimated to cross $2.2 trillion in the US this year. Hence, B2B payment networks will play a pivotal role as a crucial infrastructure.

CFOs and payment teams seek not only a seamless digital payment experience, but also advanced data and network intelligence to enhance operational efficiency. Advanced AI and predictive analytics will contribute to sophisticated B2B network intelligence, facilitating buyer and supplier relationship analysis and streamlining onboarding processes.

The maturation of APIs will further facilitate the integration of B2B payments across various financial entities. To remain relevant, B2B payment providers must either establish their own networks or integrate into existing ones established by others.

Picture: In 2024, B2B payment networks will play a key role, thanks to new business models & new technologies. © Getty Images
In 2024, B2B payment networks will play a key role, thanks to new business models & new technologies.
© Getty Images

Big Tech’s role in consumer payments will continue to rise

Big Tech companies are making banking more convenient through e-wallets, driving the quick adoption and usage of digital payments among consumers. For example, Apple is experimenting with using Open Banking APIs – enabling it to provide consumers with real-time current account information at purchase points through their iPhones.

With visible green shoots, the contribution of cutting-edge technology in changing the payment landscape is only going to increase in the future. Offering discerning experiences to the consumers, technology is and will continue to significantly reduce their need to connect with the banks.

Technology is also enabling secure and swift transactions, by keeping fraudsters at bay with layers of protection

The increase in digital payments and new payment modes have created a space for fraudsters to scam people, thus leading to greater risks. Hence, the need for fraud-prevention measures deepens with the evolving payments market.

The use of machine learning (ML) and AI has accelerated to protect business transactions, thus fostering trust among consumers. The technologies analyze the colossal amounts of data to detect and prevent payment fraud by identifying anomalies among patterns.

Facial recognition and fingerprint scans are a few examples of biometric authentication methods to protect customers from payment scams. Encryption and tokenization are also increasingly used to ensure payment security and protect user information as quantum computing advances.

High potential for high-speed, low-cost payments

The potential for high-speed, low-cost payments through programmable currencies suggests a future where these currencies are widely used for small transactions. This shift could produce positive effects, benefiting a broader customer base and enabling innovations like micropayments.

Previously, the expense of processing payments made it impractical for consumers to transfer minimal amounts for high-volume, low-priced items. The prevalent systems could further evolve with the adoption of stablecoin transfers as they are ultra-low cost. As stablecoins gain traction in the crypto world, their benefits compared to the current international payment system become evident, prompting the question of when and how the world will leverage these advantages.

Increased use cases of cryptocurrencies in the payments industry

In an increasingly globalized world, the attractiveness of a decentralized system is evident, with blockchain technology and cryptocurrencies gaining prominence since 2008. Despite over 12,000 cryptocurrencies in existence today, they have primarily been viewed as investment opportunities with limited acceptance for regular transactions.

High-street stores rarely offer cryptocurrency payment options. However, the potential for popular cryptocurrencies to become more widely accepted for day-to-day purchases exists, contingent on increased adoption among consumers, driving merchant interest in accepting them as a payment method.

Picture: Cryptocurrencies generate interest from merchants, and are likely to be accepted for common purchases. © Getty Images
Cryptocurrencies generate interest from merchants, and are likely to be accepted for common purchases.
© Getty Images

Central Bank Digital Currencies to make the future of payments flourish

Central Bank Digital Currencies (CBDCs), such as the European Central Bank’s Digital Euro proposal, are digital currencies created as a response to decentralized blockchain systems. Typically, government-issued and tied to a nation’s fiat currency, CBDCs can be implemented by centralized banks that are not bound to a specific country.

Unlike blockchain-based systems, CBDCs centralize currency management, using regular databases for record-keeping. Like cryptocurrencies, CBDCs offer advantages such as reduced risk, minimized third-party involvement, lower transaction fees, and simplified record-keeping. Unlike cryptocurrencies, CBDCs effectively combat illegal financial activities, such as centralized record-keeping.

Thanks to newer technologies and innovation, the payment landscape is advancing fast. One key trend is the shift towards embedded finance to prioritize customer experiences, while the rise of micropayments, A2A payments, and B2B payment networks are also examples of how the industry is adapting to meet changing customer needs.

However, further disruption is on the horizon with the increasing involvement of Big Tech and the potential for cryptocurrencies and CBDCs in the payments sector. As these changes occur, businesses need to adapt to new trends to remain relevant and competitive and meet consumer expectations.